The Contractor's Perspective

Will the Postal Service’s $5.5 billion default impact its contractors?

Posted in Postal Service Contracting

A double whammy has hit the U.S. Postal Service. At the close of business on August 1, 2012, the Postal Service failed to make a $5.5 billion payment owed the U.S. Treasury. And on September 30, 2012, the Postal Service defaulted on another $5.6 billion payment. Will this $11.1 billion default impact postal contractors?  No it won’t, according to the agency. But it certainly won’t help those who are doing business with the Postal Service.

The Postal Service has sought to downplay the impact of this default, issuing the following statement that there would be no impact on its operations:

This action will have no material effect on the operations of the Postal Service. We will fully fund our operations, including our obligation to provide universal postal services to the American people. We will continue to deliver the mail, pay our employees and suppliers and meet our other financial obligations. Postal Service retirees and employees will also continue to receive their health benefits. Our customers can be confident in the continued regular operations of the Postal Service.

Postal contractors will note that the above statement includes an assurance that it will “continue to … pay our employees and suppliers and meet our other financial obligations.”  Thus, suppliers should have no immediate concern about the Postal Service’s ability to make good on its financial commitments to them. Still, the negative publicity could cause financial institutions and vendors who work with postal suppliers to become concerned.

The Postal Service is not to blame here. There are many possible paths out of the Postal Service’s current financial predicament, but all of them eventually lead to roadblocks that only Congress can remove. That Congress has allowed the Postal Service to default on these payments, which USPS warned of at least a year ago, is a sad state of affairs. If Congress cannot fix the $65 billion per year Postal Service, how can it solve larger problems, such as trillion dollar budget deficits?  A pox on both Congressional houses for allowing this to happen.

Can the Postal Service be fixed?  Most assuredly, it can. There are many different ways, including several suggested by postal management, such as:

  1. Allow USPS the option to provide five-day delivery.
  2. Return $11 billion in over-payments made to the Federal Employee Retirement System (FERS) and revise the retiree pre-funding mandate.
  3. Increase and revise postage rates.
  4. Relax service standards to allow more productive use of processing plants.
  5. Close unneeded and under-utilized facilities and post offices.
  6. Allow post offices to sell more than just stamps, or contract out the retail function.
  7. Contract out those functions that can be performed more economically by the private sector.

A large part of the Postal Service’s financial problem also stems from having too many employees and an inability or reluctance to right-size the workforce. This predicament can be blamed in part on postal management and in part on Congress, which created a system that has locked the agency into inflexible collective bargaining agreements. Still, even this problem can be managed, if only Congress would allow the Postal Service to do so.

UPDATE, October 2, 2012:  In addition to the missed $5.5 billion payment due on August 1, 2012, the Postal Service did not make a separate $5.6 billion payment due the U.S. Treasury on September 30, 2012. The Postal Service issued a statement assuring employees, retirees, and suppliers that they would continue to receive payments they are due. The Postal Service also noted that current retirees remain unaffected by the missed payments. The agency noted that Congressional reform of the laws governing the Postal Service is urgently needed.

INTERVIEW:  Listen to my interview on this subject on Federal News Radio’s In Depth with Francis Rose.